Mals Musings: Segmentation, Segmentation, Segmentation
Customers differ! They differ in characteristics, needs, and the way they respond to our value propositions.
By on Jun 21, 2010Customers differ! They differ in characteristics, needs, and the way they respond to our value propositions.
For decades, these differences have been the crux of many articles and strategy documents. Most of the approaches to capitalize on these differences fall under a well-known but poorly deployed technique called segmentation.
Every strategist worthy of attention talks about segmentation, its importance, application, and power. However, from experience and observation, practice tends to have more in common with division than authentic segmentation.
Segmentation is supposed to be the categorization and grouping of customers based on the similarities they have. The idea is simple, since strategy is about how we effectively meet the needs of customers, it makes sense to make sure the so-called customer groups we have identified actually have the same need.
This foundational principle has for decades distinguished the REAL marketers from the imposters. What do you think the world looks and feels like if most of those in the world fall into the imposter category? Therein lies the challenge
We are told about the importance of understanding our customers, but how do we operationalize our insight if we do not segment properly? As one of marketings founding fathers, Ted Levitt, famously said: If you are not segmenting, you are not marketing.
Lets review some of what we actually do in practice. How about segments called big, medium and small accounts, or high, medium and low prescribers? The reality is that these customers are clearly categorized but it misses and fails the core principle and purpose of segmentation.
The categories give me a good idea of where the greatest potential lies. Unfortunately, they do not give me any indication of how to realize the potential. These are not segments because the categorizations are not based on needs and therefore do not lend themselves to better targeting, proposition development, or customer understanding.
The categories, while interesting from a sales perspective perhaps, are not homogenous. They contain numerous segments packaged into one man-made and uninsightful customer grouping.
Many ignorant marketers talk about creating segments, but marketers do not create segments any more than marketers create needs. Marketers simply understand needs and meet them. The idea of marketers creating needs has an unethical undertone to it and is wrong in many ways.
We understand and categorize needs so our organization can deliver a matching value proposition. The side effects of poor segmentation are inefficiencies from the target audience. Why? Because like the Fords black model T, it meets the needs of some but not the majority.
To target customers without segmenting them is like shooting in the dark, relying on hope. When you know your segment, your targeting is deliberate, your product development is guided, and your communication is clear. You can talk of truly knowing and understanding your customers.
When targeting, pick targets not only based on their potential, but also considering your ability to meet their needs. As a friend of mine eloquently put it, it is likely fishing with the right bait for the kind of fish you want to catch rather than using generic bait and hoping to thrive.
There are examples of organizations that have used segmentation effectively. One felt that the driving needs of customers correlated with their attitude to innovation and segmented along the lines of the diffusion of innovation (Everett Rogers ). Another felt some customers were particularly clinical in their approach, a need they were particularly adept at serving as supposed to social needs of those that are more concerned about lunch and dinner meetings.
In the end, segmentation is not an exact science, but it is behind the success of some of the worlds most successful brands, like BMW, Mercedes and Easy Jet. When done properly, segmentation leads to illumination not complication. It is time to engage in the business of meeting needs properly.